Historically, dividends and dividend growth have provided investors with a consistent and growing cash flow return. We emphasize companies possessing above-average dividend yields with the financial flexibility to grow dividends in the future. This stream of cash flow can provide opportunity for reinvestment, a steady stream of income for investors, or a portfolio cushion in weak markets.
Valuation history is important in equity selection. Companies are analyzed based on historical valuation ranges of price/sales, price/book, price/cash flow, price/earnings, as well as dividend yield. Equity selection is focused on companies that are trading at a discount to historical valuation ranges and at the upper end of their dividend yield range. Purchasing companies at historically depressed valuation levels provides capital appreciation upside to the portfolio.
Our business analysis discipline is focused on identifying quality companies with secure and growing dividends. Company outlook, balance sheet strength, liquidity, margin trends, cash flow generation, and payout ratio are a few of the fundamentals researched by our investment team. Fundamental research is critical in identifying dividend growth opportunities where increasing payouts enhance the value of shares over time.
Broad portfolio diversification provides investors the opportunity to participate throughout the market cycle. Diversification also provides both offensive and defensive characteristics important to portfolio total return.
Covered Call Options
By utilizing a covered call option strategy, portfolios benefit from incremental cash flows as well as portfolio protection in periods of market weakness. Writing covered calls provides a disciplined exit strategy at attractive prices, thereby enhancing total return.
Portfolios are well diversified across the 10 economic sectors with individual companies selected based on a combination of yield, valuation analysis, business analysis and appreciation potential. Portfolios typically will have 40-45 equity holdings with representation in each sector.